Three Rules is an example of real business research. It represents the most comprehensive research project to date that looks at the factors behind sustained business performance. It has been a while since I have underlined, highlighted and annotated a business book like this one. Highly recommended for serious students of business performance.
I suggest reading the April 2013 Harvard Business Review Article "Three rules for making a company truly great" and then you should buy the book in hard copy, as an electronic version will not support the level of notes, highlights and underlines you will make and need to refer to latter.
Michael Raynor and Mumtaz Ahmed led a team of people who looked at more than 25,000 companies for more than forty years to identify the core rules for sustained superior performance. Raynor and Ahmed found three:
Raynor and Ahmed look at historical financial performance over an extended period of time to identify consistent high performers, and the reasons behind that performance - the three rules. The authors explain at great length the methodology and limitations of this approach and indicate that the three rules are observed behavior - a model for how these companies think - more than an explicit recipe or playbook that they follow.
Raynor and Ahmed provide a powerful antidote for what they call "success studies" based on selecting leading companies over a period of years. I believe that rather than offering an alternative to Jim Collins, Tom Peters, etc. the Three Rules provides a statistical model for understanding performance in the future. Given the future of `big data' we should expect to see other studies of company performance and Raynor and Ahmed provide an example of how such statistical and business modeling should be done.
Overall highly recommended as the best business book I have read in a long time. By concentrating on simple rules, rather than complex prescriptions, the Three Rules provides executives with a clear view on their strategy, operational, product and customer decisions. Sure a company that consistently exploits non-price advantages to grow revenue faster than cost will win, but the importance of keeping that in mind over the long haul is this book's major contribution.
Strengths
Raynor and Ahmed provide a comprehensive, thoughtful and rigorous model to their analysis of company performance. The book explains how they developed the model, the challenges they had to overcome, etc. In this regard they show the way for doing scientific and analytically based business research. Do not overlook the model in reading the book, because it is perhaps the most valuable and enduring aspect of the book.
Clarity of the three rules, the case studies and their explanation in the first few chapters make this book a compelling read. The authors clearly respect the reader and their time by taking the time to be as clear as possible. I would recommend paying attention to passages starting with "in other words" as those statements are often the clearest and most impactful.
The discussion regarding how the rules work, industry structure and the like provided the depth necessary to view the rules as more than over simplifications for success. Recognizing the connection between the potential of non-price factors, and the execution of revenue over cost in an industry context was particularly helpful.
Case examples and observations from across different industries provided additional depth and explanation. These case examples are not studies in the traditional sense as the authors point out that the rules are ways of thinking more than explicit choices or strategies.
Challenges
Critics will point out that the three rules are self evident in relation to superior performance. Any company that is able to develop non-price value and use that value to drive revenue and margin will be more successful than those that rely on price/cost based competition. While that is true and classic comparative advantage strategy, the theory has never been as well supported as it is in this book.
Tactically light would be the best way to describe the level of advice and detail offered in the book. It is hard to establish and sustain non-price competition and drive revenue growth over cost and executives need more support in those areas. While the authors discuss the big ideas of the three rules, what you do about them is absent. The author's explicitly offer no recipe for success or a simple formula to follow because such things do not exist. There is no universally applicable path to success, just choices and ways of thinking about decisions - which happen to be the three rules.
Limited to observations rather than in depth study of the case companies. While the book does look at various company decisions, it does not go into depth about the strategies, challenges, options or considerations these companies made over time. This gives success a bit of a Gaia flavor - the three rules can feel more like an emergent property rather than conscious decision. This may unnecessarily limit the reader's appreciation or impact of the book.
Overall, highly recommended as a complete, well structured, thought-out and shining example of provocative ideas based on sound research that should change the way you think about business decisions and strategies.
Michael Raynor and Mumtaz Ahmed led a team of people who looked at more than 25,000 companies for more than forty years to identify the core rules for sustained superior performance. Raynor and Ahmed found three:
- Rule 1: Better before Cheaper - companies that sustain their performance through time do so by non-price benefits such as a great brand, style, functionality, experience etc.
- Rule 2: Revenue before Cost - sustaining performance involves more than just creating value but also capturing that value in the form of profits.
- Rule 3: There are no other rules - making decisions and executing strategies that put better before cheaper and revenue before cost are the fundamentals for sustained success.
- "Miracle Workers" who have winning performance through time to the extend that its not just luck,
- "Long Runners" firms whose performance is good, but more variable again indicating that its not luck and
- "Average Joes" representing performance that can be viewed as random or in keeping with industry averages.
Raynor and Ahmed look at historical financial performance over an extended period of time to identify consistent high performers, and the reasons behind that performance - the three rules. The authors explain at great length the methodology and limitations of this approach and indicate that the three rules are observed behavior - a model for how these companies think - more than an explicit recipe or playbook that they follow.
Raynor and Ahmed provide a powerful antidote for what they call "success studies" based on selecting leading companies over a period of years. I believe that rather than offering an alternative to Jim Collins, Tom Peters, etc. the Three Rules provides a statistical model for understanding performance in the future. Given the future of `big data' we should expect to see other studies of company performance and Raynor and Ahmed provide an example of how such statistical and business modeling should be done.
Overall highly recommended as the best business book I have read in a long time. By concentrating on simple rules, rather than complex prescriptions, the Three Rules provides executives with a clear view on their strategy, operational, product and customer decisions. Sure a company that consistently exploits non-price advantages to grow revenue faster than cost will win, but the importance of keeping that in mind over the long haul is this book's major contribution.
Strengths
Raynor and Ahmed provide a comprehensive, thoughtful and rigorous model to their analysis of company performance. The book explains how they developed the model, the challenges they had to overcome, etc. In this regard they show the way for doing scientific and analytically based business research. Do not overlook the model in reading the book, because it is perhaps the most valuable and enduring aspect of the book.
Clarity of the three rules, the case studies and their explanation in the first few chapters make this book a compelling read. The authors clearly respect the reader and their time by taking the time to be as clear as possible. I would recommend paying attention to passages starting with "in other words" as those statements are often the clearest and most impactful.
The discussion regarding how the rules work, industry structure and the like provided the depth necessary to view the rules as more than over simplifications for success. Recognizing the connection between the potential of non-price factors, and the execution of revenue over cost in an industry context was particularly helpful.
Case examples and observations from across different industries provided additional depth and explanation. These case examples are not studies in the traditional sense as the authors point out that the rules are ways of thinking more than explicit choices or strategies.
Challenges
Critics will point out that the three rules are self evident in relation to superior performance. Any company that is able to develop non-price value and use that value to drive revenue and margin will be more successful than those that rely on price/cost based competition. While that is true and classic comparative advantage strategy, the theory has never been as well supported as it is in this book.
Tactically light would be the best way to describe the level of advice and detail offered in the book. It is hard to establish and sustain non-price competition and drive revenue growth over cost and executives need more support in those areas. While the authors discuss the big ideas of the three rules, what you do about them is absent. The author's explicitly offer no recipe for success or a simple formula to follow because such things do not exist. There is no universally applicable path to success, just choices and ways of thinking about decisions - which happen to be the three rules.
Limited to observations rather than in depth study of the case companies. While the book does look at various company decisions, it does not go into depth about the strategies, challenges, options or considerations these companies made over time. This gives success a bit of a Gaia flavor - the three rules can feel more like an emergent property rather than conscious decision. This may unnecessarily limit the reader's appreciation or impact of the book.
Overall, highly recommended as a complete, well structured, thought-out and shining example of provocative ideas based on sound research that should change the way you think about business decisions and strategies.
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